Even the best materials stocks on Wall Street are often overlooked. But sometimes boring industries are regained attention at different times in 2021-as the global economy continues to recover, this trend should continue into 2022.
Companies in the materials sector are engaged in activities such as mining, producing refined metals and manufacturing chemicals. Their products are effective building blocks for the development of various commodities. (Steel is used to build buildings, fertilizer is used to grow food, etc.)
As investors are optimistic about the economic recovery, enthusiasm for materials stocks will rise and fall in 2021. The industry’s performance for most of this year roughly matched that of the S&P 500, although optimism about metals is high until 2022, partly because of the recent passage of the infrastructure bill.
Material stocks can also help investors deal with inflation; many commodities are priced in dollars, so cheaper dollars mean higher prices for goods priced in dollars.
Regarding enthusiasm for materials or any other recovery-related behavior, one thing to note: COVID variants, such as the strain recently called "omicron", may be a source of future fluctuations.
Having said that, here are the 12 material stocks worth buying in 2022. We looked at the stocks tracked by the stock news POWR rating system, and focused only on the fundamentals and long-term prospects of those stocks that are currently rated as "Buy" or "Strong Buy" by the company's professionals. Then we explored what makes each choice stand out among Wall Street analysts.
The data is as of November 29. The dividend yield is calculated by annualizing the most recent dividend and dividing it by the stock price.
Celanese (CE, $159.79), like many of the best material stocks on the market, is not necessarily a household name. But it may affect more aspects of your life than you realize.
Celanese is one of the world's largest producers of acetic acid and its downstream derivative chemicals, which are used in a variety of end markets, including coatings and adhesives. The company also produces specialty polymers for the automotive, electronics, medical and consumer end markets, as well as cellulose derivatives for cigarette filters.
The company continues to grow through acquisitions. For example, it acquired the thermoplastic composite material SO.F.TER in 2016. The group strengthens its solution capabilities and project pipeline. In 2017, it acquired Nilit's nylon compounding division, helping the company become a leading nylon compounding supplier.
Like many other materials stocks, Celanese has seen substantial growth in emerging markets such as Asia. It has a comprehensive chemical plant in Nanjing, China, as a basis for expansion, helping to meet the growing demand in Asia.
The POWR rating system treats CE as a B-level buy. This includes a B-level sentiment level that reflects the strong consensus of analysts. Of the 16 Wall Street professionals who follow the selection of the materials industry, 11 currently rate them as “Buy” or “Strong Buy”.
Celanese's fundamentals also make it a quality grade of B. The company's cash in the third quarter increased by 26.3% from the previous quarter to 1.4 billion U.S. dollars. This is much higher than its short-term debt of US$110 million. Celanese also has an impressive net profit margin of 35.9%. Please view Celanese (CE)'s full POWR rating here.
Looking forward to 2022, David Begleiter of Deutsche Bank rated CE stock as a buy, and recently held a meeting with CFO Scott Richardson and investors. "Overall, these meetings have strengthened our confidence in Celanese to at least meet (if not exceed) our 2022 earnings per share forecast of more than $15, and use the cash for value-creating acquisitions and/or stocks Repurchase," he said.
Commercial Metals (CMC, $32.01) operates steel mills, steel processing plants, and metal recycling facilities in the United States and Poland. The company mainly produces steel and structural steel, which are important product categories in the non-residential construction sector.
The company reported that due to the surge in demand for its products, the output and shipments of 7 of its 10 steel mills in the most recent quarter hit record highs. In North America, CMC has seen strong rebar demand due to the growth of the construction industry. In addition, strong construction activity in Europe (especially Poland) is driving demand.
Driven by massive demand and tight supply, CMC also profited from historically high steel prices. In response to rising costs, the company has implemented price increases for all rolling mill products. The management also benefits from its ongoing network optimization work. This is expected to increase its profit margin and reduce costs.
The overall rating of the stock in the POWR rating system is B (buy). This includes B-level growth, which is not surprising, as earnings per share have grown an average of 44.8% annually over the past five years. Earnings for the quarter are expected to increase by 96.6% year-on-year.
Due to its short-term and long-term price advantage, the company's momentum rating is also A. Get the complete POWR rating analysis of Commercial Metals (CMC) here.
Conversely, David Gagliano of BMO Capital Markets actually believes that business momentum is slowing down, but still believes that the stock is "relatively in a good position."
"After six consecutive quarters of strong EBITDA [Earnings before interest, taxes, depreciation, and amortization], we estimate that the positive earnings momentum has slowed, because as FY22 progresses, stable metal margins/volumes and more The high switching costs offset the improvement in downstream product performance," he said. "Nevertheless, we estimate that the resilient overall results and consistent free cash flow fund the Arizona 2 micro plant and system buyback."
Dow (DOW, US$56.86) is a diversified chemical manufacturing company. It combines science and technology to develop innovative solutions that are vital to human progress. Its product portfolio includes packaging and specialty plastics, industrial intermediates and infrastructure, and high-performance materials and coatings.
The Dow Jones Index enters 2022 with a high profile of operation. In the most recent quarter, the company's reported revenue and earnings exceeded analyst expectations. Sales have been pushed up due to rising local prices and tight supply. The company's third-quarter prices increased by 50% year-on-year, which helped net sales increase by 53%. Dow is also expected to benefit from actions to cut costs and increase productivity. Its restructuring plan should be profitable, and it is expected to achieve an operating rate of US$300 million by the end of 2021.
The company also focuses on attractive areas for investment. Dow is currently investing in several high-return projects, such as expanding its downstream silicone production capacity. There are also plans to expand an ethylene cracker in Canada, and its South China Specialty Products Center project will enable the company to meet Asia’s demand for polyurethane systems and alkoxylates.
Dow is one of several B-rated (buy) materials stocks in the POWR rating system. This is supported by the low-cost tracking price-to-earnings ratio (P/E) and forward price-to-earnings ratio of 7.5 and 8.7, respectively, and the promotion of A-level value. Its 0.8 P/S ratio is also well below the industry average of 1.2.
Dow's quality grade is also B. Its cash balance in the most recent quarter was US$3 billion, much higher than its short-term debt of US$683 million. Management is also quite efficient, with a return on equity of 35.4%. View the full POWR rating of the Dow Jones Indices (DOW) here.
"We reiterate our buy rating on the Dow, with a target price of $78," said Bill Selesky, an analyst at Argus Research. "We expect the Dow Jones Indices to benefit from stronger actual prices of bulk chemicals and increased demand in North America and China. We are also optimistic about the Dow Jones Indices’ low-cost structure, solid cash flow, declining capital expenditure requirements and sustainable dividends [current income Rate 5.1%]."
Nutrien (NTR, $68.43) is the largest fertilizer producer in the world. The company was founded a few years ago as a result of the merger of PotashCorp and Agrium. It produces three main crop nutrients: nitrogen, potassium and phosphate. Its main focus is potash, and it is the world leader in installed capacity, with a market share of approximately 20%.
The company is also the largest agricultural retailer in the United States, selling fertilizers, crop chemicals, seeds and services directly to farm customers.
NTR's third-quarter performance was solid, with net income of US$726 million, which was higher than the loss of US$587 million in the same period last year. Due to increased sales in all market segments and strong demand for crop inputs, revenue increased by 43.3% year-on-year.
Driven by the strengthening of the global agricultural market, nitrogen prices have also risen. This resulted in a 121% year-on-year increase in revenue from the nitrogen division. Due to the strong domestic and international demand driven by the rising commodity prices of crops, NTR also rose this year due to high sales of potash fertilizer. Nutrien also announced plans to increase potash production based on demand.
This dynamic prompted several analysts to raise their outlook for Nutrien stock. UBS (Buy) raised its earnings and EBITDA forecasts for 2021, 2022 and 2023, and raised its target price from US$81 to US$88 per share.
The POWR rating system assigns a B buy rating to NTR, partly because its growth rating is B. The company's sales have grown by an average of 38.8% annually over the past five years, and analysts predict revenue will grow by 64.1% this quarter year-on-year.
The value grade of NTR is also B. In other words, it is one of the cheapest material stocks to enter 2022, with a forward P/E ratio of only 9.2. In addition, its price-to-book ratio is only 4.3, while the industry average is 31.9. Get Nutrien (NTR)'s complete POWR rating analysis here.
Reliance Steel & Aluminium (RS, $156.83) is a metal service center in the United States that provides metal processing and inventory management services for carbon steel, stainless steel, aluminum, and alloys. The company mainly supplies non-residential construction, automotive, aerospace, energy, transportation and heavy equipment end markets.
It recently announced strong results for the third quarter. Adjusted earnings per share were US$6.15, a year-on-year increase of 228.9%. Due to the favorable pricing environment and high demand in many end markets, sales this quarter even reached a record level, an increase of 84% year-on-year. This is especially true in the non-residential construction sector, its largest market.
Due to the strong bidding activity, management expects this situation to continue until the rest of this year and 2022. RS should also benefit from the expansion into next year's automotive, home appliances and packaging end markets. In addition, the investment in new processing capacity has allowed the company to increase the percentage of orders.
Strong demand has also pushed up metal prices, which will help the company's revenue and profit margins.
The POWR rating system treats RS as another B-level buy material stock. The company’s growth grade is B, which makes sense, because earnings per share have grown by an average of 32.3% per year over the past five years. In addition, earnings for the quarter are expected to increase by 155.2% year-on-year.
Due to its robust balance sheet, RS also received a B quality rating. The company's cash balance at the end of the third quarter was $638 million, while short-term debt was only $54 million. Its low debt-to-equity ratio of 0.3 is also encouraging. Please view Reliance Steel (RS)'s complete POWR rating analysis here.
ArcelorMittal (MT, US$27.52) is one of the world's leading steel and mining companies. Although most of its revenue comes from Brazil, it has customers in 160 countries and a competitive portfolio of steel plants in developed and emerging markets. Its products are mainly sold to customers in the automotive, general-purpose and packaging industries.
Like many other steel companies, MT performed solidly in the third quarter, driven by a strong pricing environment. Due to the sharp increase in the average steel sales price and the increase in the price of iron ore, sales increased. The company has also been cutting costs. For example, management implemented a $1 billion fixed cost reduction plan to help it make a profit.
MT has always focused on improving cost efficiency by reducing debt and optimizing footprint. The company is also expanding its steelmaking capacity and shifting to high value-added products, including its automotive steel wire. For example, the company expanded its automotive steel product portfolio by launching a new generation of advanced high-strength steel.
ArcelorMittal is the first material stock selected here to receive an overall A rating in the POWR rating system, which means a strong buy. The company has an A-level growth rating because its earnings per share has increased by an average of 29.4% annually over the past three years, and it is expected to soar to $3.80 this quarter from 19 cents in the same period last year. View ArcelorMittal (MT)'s full POWR rating here.
"We expect shareholders to continue to receive strong returns in 2022 and 2023," said Bastian Synagowitz, an analyst at Deutsche Bank, who rated MT's stock as a buy. "Although we believe that steel profit margins have exceeded their peak volatility, energy prices and macro factors are suppressing market sentiment, we continue to expect the environment to be above the mid-cycle in the next few years, affected by the obvious demand recovery and China's tightening export policy. And capacity restrictions."
Chemours (CC, US$31.04) is a global chemical supplier. It provides customized solutions with a wide range of industrial and specialty chemical products for various markets. Its main products include titanium dioxide, refrigerants, industrial fluoropolymer resins and sodium cyanide.
The company has achieved substantial growth through the adoption of its Opteon platform. Opteon is a refrigerant with the lowest global warming potential. Due to the high demand for mobile and fixed applications, CC is committed to increasing its adoption rate. In 2019, Chemours opened a new Opteon plant in Corpus Christi and tripled its production capacity to meet growing demand. As the automotive industry recovers, Opteon should also see more revenue.
CC also benefited from the strong performance of its glycolic acid and mining solutions divisions. In addition, due to the demand for architectural coatings, sales of its titanium technology business should flourish. The recently passed infrastructure legislation is also expected to stimulate construction spending and coating demand. This bodes well for the company's future.
"Chemours has done a good job responding to the pandemic, and we expect it to benefit from its extensive global footprint and improving industry conditions," said David Coleman (Buy), an analyst at Argus Research. , But he pointed out that the global economic weakness, like most other material stocks, will put pressure on CC.
Chemours is another of the best materials stocks in the POWR rating system, with an overall rating of A (Strong Buy). Due to the negligible forward price-to-earnings ratio of 6.9, its value grade is A. Its market-to-sales ratio of 0.9 is also very attractive, and its EV/EBITDA (enterprise value and EBITDA) is below 10. To view the complete POWR rating analysis of Chemours (CC), click here.
Kronos Worldwide (KRO, US$14.48) produces and sells titanium dioxide (TiO2) pigments. Titanium dioxide is a white inorganic pigment used in plastics, such as packaging materials and food packaging, household goods, electrical appliances, toys, and computer casings. Most of KRO's sales come from titanium dioxide used in automobiles, airplanes, machinery, electrical appliances, traffic paints, and commercial and residential interior and exterior wall coatings.
In the most recent quarter, the company's profit was 36 million U.S. dollars, up from 8.1 million U.S. dollars in the same period last year. Profits were driven by the increase in sales volume and the increase in the average selling price of titanium dioxide.
In fact, KRO should benefit from the higher demand for TiO2 in the future. Due to strong consumption in Western Europe and North America, the demand for titanium dioxide has increased in the past few years. In addition, the titanium dioxide market in South America, Eastern Europe and the Asia-Pacific region is increasing. The development of new products and the improvement of existing facilities herald its future prospects.
Deutsche Bank's Begleiter pointed out that cost pressures may limit Kronos's fourth-quarter performance, but maintained his buy rating "because the fundamentals of titanium dioxide remain strong."
The POWR rating system provides KRO with an A rating, which means a strong buy, making it one of the best material picks on the market. KRO is also one of the cheapest sectors. The market-to-sales ratio of 0.9 and the ratio of market value to tangible book value of 2.0 helped it to obtain an A-level value rating. To view Kronos (KRO)'s complete POWR rating analysis, click here.
Methanex (MEOH, $41.81) manufactures and sells methanol. Its customers use methanol as a raw material to produce final products, including adhesives, foams, solvents, and windshield washer fluids. The company also sells its products to the refining industry, where methanol is mixed with gasoline to produce high-octane fuel or as a component of biodiesel.
MEOH distributes its products through a global supply chain, which includes the operations of port terminals, tankers, barges, rail cars, trucks, and pipelines. The tight methanol market and industry supply bottlenecks are pushing up prices, which has brought a solid quarter for the company. Compared with the previous year, its adjusted EBITDA has increased by more than six times.
The management expects that methanol prices will rise sharply this quarter, which will help drive MEOH's profitability. The company also restarted production at its IV plant in Chile last month, which will lead to an increase in production in the fourth quarter. In addition, the restart of its Motunui plant in New Zealand in the summer may also translate to higher adjusted EBITDA in the fourth quarter.
According to the A (Strong Buy) rating in the POWR rating system, Methanex is one of the most worth buying materials stocks in 2022. The company's growth grade is B, because sales have increased by 52.4% in the past year and are expected to increase by 54.2% this year. Earnings per share this quarter are expected to jump to US$1.23, compared with a loss of US$1.03 per share in the same period last year.
Joel Jackson, an analyst at BMO Capital Markets, believes that investors’ ignorance of Methanex is not good for them: “Even though methanol hits a 13-year high, MEOH seems to be undervalued,” said Jackson, who rated the stock as outperforming the market (equivalent to buying ).
The quality grade of Methanex is also B. The company's cash balance was US$932 million, a significant increase from the second quarter, and it has an advantage over short-term debt of only US$11.6 million. Get a complete POWR rating analysis for Methanex (MEOH) here.
Olin (OLN, $58.17) manufactures and sells various chemicals and chemical products. It sells products through three divisions, but its chlor-alkali products and vinyl divisions generate the most revenue. It sells chlorine and caustic soda used in various industries, including cosmetics, textiles, crop protection and fire protection products. OLN's epoxy resin department sells epoxy resins used in paints and coatings.
In the most recent quarter, revenue in its chlor-alkali products and vinyl divisions increased by 40% from the previous year, while sales in its epoxy resin division increased by 84%-partly due to higher prices. The management expects that the revenue of the chlor-alkali products and vinyl products division will increase in the future.
In addition, the Winchester department also sells sports ammunition and ammunition accessories. In the most recent quarter, due to increased commercial and military sales and higher prices for commercial ammunition, revenue in this sector increased by 94% year-on-year. An important driver of growth is a multi-year contract to operate the government-owned Lake City ammunition facility.
OLN also benefits from strategic investments in information technology (IT). A recent IT infrastructure project is expected to maximize cost effectiveness and efficiency.
Oilon's overall rating in the POWR rating system is A (Strong Buy), and the growth rating is B. Revenue for the quarter is expected to grow by 42% year-on-year and for the full year to grow by 52.9%. Earnings look better, with earnings per share expected to reach $8.53 in fiscal 2021, and a loss per share in 2020 of $1.11.
Due to the solid fundamentals, the quality level of OLN is also B. The company's 40.1% return on equity indicates management efficiency, and its 1.5 current ratio indicates that the company has sufficient liquidity to pay short-term debt. View Olin (OLN)'s full POWR rating here.
CFRA analyst Richard Wolfe sees Olin as one of the best materials stocks entering 2022.
"We recognize that OLN is our preferred commodity chemical because of the company's ability to leverage its value-based model, which is reflected in strong EBITDA and free cash flow growth," he said. "We believe this will help further reduce debt (OLN's goal is $1.1 billion in 2021), return excess cash to shareholders, and merger opportunities."
Univar Solutions (UNVR, US$27.05) manufactures and sells various specialty chemicals and chemical products. Customers include various end users, namely end users in the fields of coatings and adhesives, agriculture, chemical manufacturing, cleaning and disinfection, personal care, and mining. It also provides a range of services, including automatic tank monitoring, chemical waste management and specialty chemical mixing.
Despite the severe challenges facing the supply chain, the company's performance in the third quarter was solid. The impact of rising chemical prices and increased industrial demand has driven sales growth. In fact, since the second quarter, UNVR has benefited from rising chemical prices, and management expects this situation to continue next year.
Univar also benefits from market expansion and acquisitions. For example, its acquisition of Nexeo Solutions in 2019 enhanced its capabilities and accelerated its ability to create value for customers. It is expected that by the first quarter of 2022, the acquisition will also add USD 120 million in synergies.
"After completing the Nexeo integration (and further portfolio optimization), the company has refocused on growth, has a higher quality portfolio, and many new tools to achieve higher profit conversion," said UBS (Buy) . "We continue to believe that UNVR's stock is undervalued. Our basic situation is driven by earnings growth (approximately 25% upside) and upside (+60%) for re-rating after implementation of improvements."
The POWR rating system ranks UNVR as one of the best material stocks in 2022, with an overall rating of A (Strong Buy). The company's growth grade is A, because analysts expect earnings per share for the quarter to grow 70.4% year-on-year and 64.8% for the full year. View Univar (UNVR)'s complete POWR rating analysis here.
Westlake Chemical (WLK, US$98.36) is a vertically integrated manufacturer and marketer of basic chemicals, vinyl, polymers and construction products. Its products are used in flexible and hard packaging, automotive products, coatings, water treatment, refrigerants, residential and commercial buildings.
The company recently announced a record profit for the third quarter of 2021. As WLK benefited from the global economic rebound, rising prices and higher profit margins, sales increased by 61% year-on-year. This is especially true for PVC resins. The company also sees high demand for construction and building materials.
In addition, WLK is benefiting from its 2016 acquisition of Axiall, a manufacturer and marketer of vinyl chloride and aromatics. This acquisition helped Westlake diversify its product portfolio and geographic footprint. The company should also benefit from its recently announced acquisition of Hexion’s epoxy and specialty resin businesses for US$1.2 billion.
BMO Capital Markets analyst John said: "Although the growth rate of the platform may not be large, the vertical integration of the business and the WLK chlor-alkali platform should produce synergies, moderately reduce business volatility, and provide options." Mike Narti. "This acquisition should also steadily increase revenue and cash flow."
Westlake has also seen a good demand trend for polyethylene, which is expected to continue to be used in the food packaging industry. The increase in housing starts also heralds its downstream vinyl products business.
WLK's overall rating is A, which translates into a strong buy in the POWR rating system, which determines it as one of the best material stocks to buy in 2022.
This partly stems from A-level growth. Analysts expect revenue for the quarter to grow 47.1% year-on-year, and nearly 50% for the entire fiscal year. In addition, earnings for this quarter are expected to soar to $4.39 per share from 87 cents per share in the same period last year. A similar increase is expected throughout the year.
Westlake Chemical also has a value grade of B, which makes sense given its trailing P/E ratio of 8.6 and forward P/E ratio of 7.7. In addition, the company's P/S ratio and P/B ratio of 1.2 and 1.7 are far lower than the industry average of 2.2 and 3.2, respectively. Please view Westlake (WLK)'s complete POWR rating analysis here.
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